Langton Capital – 2019-05-23 – PREMIUM – M&B, Merlin, Jamie’s, Pret, EZH, pub numbers etc.:
M&B, Merlin, Jamie’s, Pret, EZH, pub numbers etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
May is a pleasant time of year but I hesitate to admit that I could have a favourite month. That because, no matter how much you try to make them last, they’re only a given length and, when they’re over, you have to be prepared to admit to yourself that the rest of the year could be worse.
Maybe that’s going to be 2010 all over as we’re nearly at the end of May and, even with a long weekend to look forward to, it’s hard to escape the feeling that time is slipping by.
Not only are we an amazing five twelfths of the way through the year as a whole but we’re also two sevenths of the way through the time that Donald Tusk told us to be careful not to waste in sorting out the current Brexit mess.
Anyway, whilst there’s precious little you can do to stop the clock, there are various things that you can do while the time is running down and, with the public voting today for the EU parliament, there’s likely to be a degree of frustration around with the UK’s various posturing politicians. On to the news.
MITCHELLS & BUTLERS’ H1 NUMBERS:
Mitchells & Butlers has this morning reported H1 numbers and our comments are set out below:
• M&B reports that it has seen a growth in its adjusted operating profit and in its margins
• It says it is continuing to outperform the market with an increase in momentum driven by ‘fresh initiatives’
• LfL sales are +4.1% in H1 with total revenue of £1.186bn (2018: £1.130bn).
• Sales were +3.8% in the 33wks to 18 May suggesting a slight slowdown (against tougher comps) in recent weeks
• Adjusted operating profits are +£10m at £151m with adjusted EPS up 15.8% at 16.1p
Balance Sheet, Debt etc.:
• M&B reports it invested £90m in capital spending in H1 ‘including 2 new site openings and 206 conversions and remodels’
• The group had adjusted free cash flow of £23m (2018: negative £3m)
• Debt has been cut to £1.63bn from £1.72bn last year. Debt stands at 3.8x adjusted EBITDA versus 4.1x last year
• M&B says it has had a ‘strong first half with market outperformance and a return to profit growth’.
• It has seen returns on capital projects improve and says that ‘sales focused initiatives [are] driving improved performance across the portfolio’
• M&B CEO Phil Urban comments ‘this is a strong set of results, demonstrating that we continue to build momentum in the business, delivering sales growth, sustained market outperformance and a return to operating profit growth all while reducing leverage to below four times.’
• Mr Urban continues ‘this strong performance comes from the progress we continue to make in our three priority areas: building a more balanced business; instilling a more commercial culture; and driving an innovation agenda.’
• The group CEO says ‘success in this highly competitive market is dependent on a continuous stream of improvements, and that is what we are delivering with many small advances at site level driving significant benefits in aggregate.’
• Mr Urban concludes ‘we will maintain our focus on these initiatives which we believe are transforming the business.’
• Trading has slowed a tad in recent weeks (see above) and comps are tougher.
• These are industry rather than stock-specific factors. Summer 2018 was very warm & the World Cup helped wet (though not food) sales
• M&B says ‘the market backdrop remains uncertain due to the political and economic landscape in the UK. However, we are pleased with the progress of our trading performance and with the momentum the business carries into the second half of the year.’
• M&B confirmed at the time of its Q1 update in early January that it had traded strongly over Christmas.
• Food sales at that stage had picked up and the group performed well over the strongest weeks of the year.
• In recent years, M&B has invested in capital spending. The returns here will have shored up the overall numbers which, in the absence of capex, would have been a little less good. The group will also have benefited from its extensive estate in London.
• M&B is getting stuck in both in terms of discounting and in evolving its offer in line with changing consumer tastes.
• As mentioned earlier, the group has a large estate and all changes will take time to come through. Competitors will not stand still. Smaller operators will be more nimble but other, larger players, are facing much the same challenges as M&B.
• M&B’s shares have been weak recently and trade at under 7x earnings with substantial asset-backing. There is no dividend, however, and the share register remains dominated by the company’s two large shareholders.
• Investors will be reassured that trading remains relatively good and that margins are being held. Comps are getting tougher, however, and the group’s competitors continue to raise the bar.
JAMIE’S PUTS CASUAL DINING MALAISE IN THE SPOTLIGHT: Continued from yesterday. Jamie’s isn’t the biggest or most spectacular collapse (think Pat Val) but it does keep the restaurant industry’s problems on the front page. 23 May 2019:
• The casual dining market is overcrowded. It’s best to be good or cheap. Preferably you can be both (think Franco Manca) but, if you can’t be either, you’ve got problems.
Lack of clear focus:
• Some chains are authentic and good value.
• Others feature celebrity (you can’t roll out much), high quality food (you can’t have a huge chain) or novelty (fleeting).
• Some feature one of the above & then push margin. This may not end well.
• Frankie & Benny’s filled a niche but it expanded too rapidly & pushed price.
• Jamie’s featured celebrity but it also grew out of its clothes and pushed price – though the huge losses that the group made (admittedly write-downs) do perhaps suggest that it didn’t push them enough
Some unrelated points:
• We have commented on High Street High Rollers on a number of occasion. These are the high-profile F&B operators that simply don’t make money
• In fact, they lose a fortune. Often this is then spun as investment or success in some way. Very occasionally, think Caffe Nero, a loss making chain can push on and grow its way to profitability. This is often not achieved.
• Things change. What’s hot today might be cooler tomorrow. So why sign 25yr leases without break clauses?
• Famously ‘the enemy gets a vote’. You don’t operate in a vacuum. Your competitors will shake the rope while you’re trying to walk across it.
• New tech, internet, delivery etc. will cause issues. Again, why not secure break clauses? Where’s the exit route if things get sticky?
• Best intentions this morning but we’ve run out of time again.
GENERAL NEWS – PUBS & RESTAURANTS:
• M&B reports that it has seen a growth in its adjusted operating profit and in its margins. It says it is continuing to outperform the market with an increase in momentum driven by ‘fresh initiatives’. LfL sales are +4.1% in H1 with total revenue of £1.186bn (2018: £1.130bn).
• M&B Sales were +3.8% in the 33wks to 18 May suggesting a slight slowdown (against tougher comps) in recent weeks. See Premium Email for more detail.
• Young & Co FY numbers. A note of caution & a tough start to the current year. Group remains confident.
• YNGA has reported FY numbers saying revenues rose 8.7% to £303.7m with adjusted PBT of £43.4m vs £41.0m last year.
• YNGA EPS is 72.13p (2018: 67.74p) and the total dividend for the year is up 6.0% at 20.78p.
• YNGA reports ‘another highly successful year, despite a challenging market backdrop’. It says managed LfL sales rose 5.1%.
• YNGA reports LfL tenanted revenues up 5.0%. the group has seen a ‘total investment of £67.1 million on acquisitions, including 15 Redcomb pubs, and upgrades to our existing estate.’
• CEO Patrick Dardis comments ‘I am very pleased to announce such a strong set of results which are a testament to the quality of our incredible people who bring our premium positioned pubs to life. These results demonstrate that our strategy continues to deliver.’
• Mr Dardis continues ‘the addition of the 15 Redcomb pubs complements the existing Young’s managed house estate and presents tremendous opportunities for future growth. We have continued to invest in our existing estate as well as upgrading our technology, and are excited to realise this potential.’
• YNGA concludes ‘it has been a tough start to the year against very strong comparatives with the only good weather coming in the Easter bank holiday this year. Looking ahead, the amazing weather throughout the summer of 2018 and England’s World Cup success sets a high benchmark for the coming months. However, we remain confident that we will continue our strong growth story in the coming year.’
• Pret A Manger has acquired EAT with plans to convert sites into ‘Veggie Prets’. Clive Schlee, CEO of Pret said: “The purpose of this deal is to serve a growing demand of vegetarian and vegan customers who want delicious, high quality food and drink options. We have been developing the Veggie Pret concept for over two years and we now have four hugely successful shops across London and Manchester’.
• Andrew Aylwin, Chairman of EAT commented on the group’s recent sale to Pret: ‘Pret is a fantastic brand and this transaction represents a strong strategic fit with benefits for all concerned. I would like to thank Andrew Walker and his team for the outstanding job they have done revitalising the brand and business in the last few years and the company’s shareholders and lenders for their support’.
• Diageo has announced that it aims to deliver sustainable performance supported by data-led insight. Chief Executive of Diageo, Ivan Menezes said: ‘Diageo has delivered strong performance over the past two years with consistent mid-single digit organic top line growth; upweighted investment in our brands; as well as organic operating margin expansion and strong cash flows. During the same period we have generated attractive total shareholder returns and, from fiscal 17 to fiscal 19 H1, have returned £7bn to shareholders via dividends and share buy-backs’.
• AlixPartners has found that licenced premises in the UK have decreased 2.3% with 2,753 units closing. The Government has stated its intention to fund £62m in the reviving of disused pubs on UK highstreets. Culture Secretary Jeremy Wright said: ‘This £62m investment will breathe new life into high streets right across the country, benefiting local people and businesses, as well as providing assistance to much-loved historic buildings. It is right that we do all we can to not only protect our heritage, but make it work for modern life so it can be enjoyed by as many people as possible’.
• Michael Gove has announced a ban on plastic straws, drink stirrers and cotton buds will be introduced by April 2020. Gove said: ‘Urgent and decisive action is needed to tackle plastic pollution and protect our environment. These items are often used for just a few minutes but take hundreds of years to break down, ending up in our seas and oceans and harming precious marine life’.
• The BBPA has welcomed the planned ban on plastic straws, drinks stirrers and cotton buds, with Chief Executive commenting: ‘It’s important we all do our bit to reduce plastic waste and that is why we welcome the Government’s ban on plastic straws, stirrers and cotton buds. It is important that the ban recognises the needs of customers with a disability who require plastic straws, so pubs will still be able to provide them on request’.
• Coca-Cola has announced it will be maintaining its majority stake in Coca-Cola Beverages Africa, the largest bottler of Coca-Cola beverages on the continent.
• A letter from the Home Secretary to the Migration Advisory Committee (MAC) purportedly urges the dropping of a £30,000 salary threshold for migrants to work in the UK, instead suggesting that companies pay ‘the going rate’, a move welcomed by UKHospitality.
• MOD Pizza puts its flagship Leicester Square site up for sale after less than three years of trading. MOD Pizza said Tuesday it has raised a further $160m in a financing round in the US, which it will use to grow to around 1,000 locations over the next five years.
• Arcadia Group plans to close 23 stores, affecting 520 jobs, and cut the rent at another 194 stores. The company also plans to shut all its 11 Topshop and Topman stores in the US.
HOLIDAYS & LEISURE TRAVEL:
• EasyHotel has reported that it has pre-let ‘all of the self-contained office accommodation (15,500 sq. ft) at its property at its 80 Old Street, London refurbishment project to a single tenant.’
• EZH says ‘the offices have been pre-let on a ten-year FRI (fully repairing and insuring) lease at an annual rent of £59.50 per sq.ft with an upward only rent review at year five. There is an initial rent-free period.’
• EZH CEO Guy Parsons says ‘with the office space now let and the newly refurbished hotel on track to open in June, both ahead of plan, we continue to be very pleased with the outcome of the redevelopment programme at Old Street.’
• Many agents are supporting Thomas Cook after it reported unexpectedly large losses, saying it would be ‘devastating’ for the industry if Thomas Cook went under.
• A new study reveals 38% of British holidaymakers travelling abroad this summer do not have travel insurance yet. Abta warned 8.6 million people could be putting themselves at risk of paying high medical or repatriation costs if they were to fall ill abroad.
• Lastminute.com is introducing a new instalment payment solution designed to ease the financial burden of booking a holiday and help enhance travel planning, according to the company. Instant financing options are being made available to users through a partnership with Mastercard and multiple lender connections firm Divido.
• A sustainable tourism tax of between €1-4 per night in the Balearic Islands has so far contributed towards a pedestrian walkway in Ibiza, the promotion of electric vehicles across the islands and the signposting of cycle routes in Majorca.
• A Barclays study shows more Britons will opt for staycations this year over heading for trips abroad. The survey said that 18% cited concern over the impact that Brexit could have on foreign travel and family finances.
• Hollywood Bowl reports LfL revenue up 4.4% with total revenue of £67m for the six month period ended 31 March 2019. Group adjusted EBITDA was up 2.3% yoy to £21.1m with profit after tax up 13.6% to £13.4m.
• Hollywood Bowl opened two new centres in its H1, bringing the total estate to 60 sites and has signed for further developments at Belfast, Colchester and Thorpe Park in Leeds (mini-golf).
• CEO of Hollywood Bowl, Steve Burns, said ‘We are delighted at the strong start to the year which puts us on track to deliver our expectations for the full year…There remains significant scope for further sustainable growth through the continued investment in the quality of our centres, our new centre pipeline as well as the introduction of new technology and initiatives that enhance our already industry leading customer proposition.’
• Bloomberg reports ByteDance, owner of TikTok, might challenge Spotify as a paid streaming service in emerging markets. ByteDance could introduce an app in several non-first-world countries where Spotify, Apple Music and other music streaming services have yet to take hold.
• Merlin shares slipped again yesterday to finish down 1.5% at 332.5p. The shares were 375p only last week.
• The FT reports that US activist investment group ValueAct is pushing Merlin Entertainments to flush out a buyer to take it private, after the recent sharp share price falls. The investor says ‘there is significant private capital interest in partnering with the company.’
• ValueAct says, perhaps self-servingly, that ‘private ownership is simply better placed than current public shareholders to underwrite the investments Merlin must make, and to align employee incentives appropriately.’ It believes that the share price of MERL ‘does not reflect the underlying value of the company and may not in the foreseeable future” because analysts were wary of Merlin’s plans to invest an increasing amount of capital while returns were declining.’ In some ways, one would like to agree with them – at least on the share price valuation if not on the solution.
FINANCE & ECONOMICS:
• Inflation edged up to 2.1% in April from 1.9% in March. The figure is above the Bank of England’s 2% target but slightly below the figure estimated by analysts.
• The ONS said rising energy bills helped push inflation up.
• The NIESR says underlying inflation, however, slipped a little. It says ‘our analysis of more than 130,000 goods and services included in the basket, however, suggests a decline in inflationary pressure.’
• The ONS says house prices in Yorkshire & Humberside rose by 3.6% in the year to March whilst those in London slipped by 1.9%.
• Sterling down a chunk at $1.2644 and €1.1338. Oil down at $70.50. UK 10yr gilt yield down 8bps at 1.01%. World markets mixed yesterday with Far East lower in Thursday trade.
• Brexit, politics etc.:
o Country voting today for the EU parliament. Tories, incorporating the Monster Raving Loony Party, currently in 5th place behind Brexit Party, Lib Dems, Labour & Greens.
o Opposition to Theresa May’s withdrawal bill intensified yesterday amid signs that it could lose in the Commons by a larger margin than did version three.
o The BBC’s Laura Kuenssberg reports that the PM will be doing well if she can survive the upcoming weekend.
o Brexiteer Priti Patel has accused the ‘entire cabinet and especially the so-called Brexiteers in office’ of failing to deliver Brexit.
o DUP spokesman Sammy Wilson said yesterday his party would ‘not accept this flawed agreement’.
o The All-Party Parliamentary Group for SME housebuilders has said that freedom of movement should be retained for some building workers.
o The ‘last days of May’ pun is becoming overused. That said, Mrs May’s administration would appear to be in its final days.
o It’s hard to see why any would-be Tory leadership contenders would vote for Mrs May’s bill only to have to live with its consequences.
o A spokesman for no10 has said that there is a very long way to go before a deal can be steered through parliament.
o Tory Tom Tugendhat is amongst a number of Tory MPs calling for Mrs May to go. He said she had ‘comprehensively failed’ to deliver on promises.
START THE DAY WITH A SONG:
Yesterday’s song was Mockingbird by Eminem. Today, who sang:
If you don’t eat yer meat, you can’t have any pudding
How can you have any pudding if you don’t eat yer meat?
RETAIL NEWS WITH NICK BUBB:
• B&M: Today’s finals from B&M are headlined “Strong Q4 and on-going Performance”, as the highlight is that the core UK business bounced back to form with 6.7% Easter-adjusted LFL sales growth in Q4 and that it has made a “pleasing start to Q1 with mid-single digit LFL sales growth”. No doubt the more helpful weather year-on-year has helped boost seasonal range performance. Elsewhere the new Overseas operations haven’t done much to help B&M, with Germany particularly disappointing, so that adjusted overall PBT is only 8% up at £249m, but CEO Simon Arora says “We enter the new financial year with renewed trading momentum particularly in the UK, a high quality new store expansion programme in place, and investing in our new infrastructure to support future growth. I’m confident B&M is well-positioned to deliver further strong progress in the current year and
• Mothercare: Today’s finals have suddenly been postponed until tomorrow, oddly enough, “as a result of the complexity of our financial year ended 30 March 2019 – which included the £117.5m refinancing and associated UK and group restructuring, the disposal of both Early Learning Centre and our head office property”, although the underlying results are said to be in line with expectations.
• News Flow This Week: The Hotel Chocolat Capital Markets Day kicks off at 12 o’clock today in the City. Tomorrow brings the ONS Retail Sales figures for April (along with the CBI Distributive Trades survey for “May”). And remember that the results of today’s EU Elections in the UK are not announced until Sunday night.